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Adobe shares climb on earnings beat, AI prospects

 

Monday, June 19, 2023

Today’s headlines

What’s happening: Shares of Adobe gained on Friday, after the company released results for its second quarter.

What happened: The creative software company topped market estimates for the second quarter.

Apart from issuing a strong earnings guidance, Adobe made announcements around Generative AI.

How were the results: The San Jose, California-based company reported double-digit growth in sales for the quarter ended June 2.

  • Revenues surged 10% year-over-year to $4.82 billion, which topped the consensus estimates of $4.43 billion.
  • Adjusted earnings came in at $3.91 per share, surpassing Wall Street expectations of $3.79 per share.

Why it matters: Revenues of the Digital Media segment rose 10% year-over-year to $3.51 billion, while Digital Experience revenues climbed 12% to $1.22 billion. Adobe’s gross margins expanded by 41 bps to 88.1% during the quarter.

Adobe has been adding artificial intelligence (AI) to its various products, including Acrobat, Photoshop and Premiere Pro. The earnings call on Friday focused on the company’s product roadmap around Generative AI, especially for its Content Supply Chain Solution.

“Our ongoing R&D investments have enabled a rapid development and deployment of Firefly, our generative AI technology. We believe generative AI will drive both further accessibility and adoption of our products,” CEO Shantanu Narayen said.

For the third quarter, management guided to revenue of $4.83 billion to $4.87 billion, versus market estimates of $4.86 billion. The company projected third-quarter adjusted earnings of $3.95 to $4 per share, higher than market expectations of $3.89 per share.

Adobe issued its full-year revenue guidance between $19.25 billion to $19.35 billion and adjusted earnings of $15.65 to $15.75 per share.

How shares responded: Adobe’s shares gained 0.9% to close at $495.18 on Friday, after the release of quarterly results. The stock has jumped around 33% over the past month.

What to watch: Investors will watch Adobe’s approach to embedding AI to its solutions, which is expected to provide near- and long-term benefits for the company.

Markets will also monitor Adobe’s deal with design startup Figma, for which the company has been in talks with the regulators.

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports

Context: The CAD/USD forex pair strengthened to a nine-month high on Friday, amid a rise in oil prices.

Details: The Bank of Canada recently raised its overnight rate to a 22-year high of 4.75%, after remaining on hold since January. Traders are now seeing the central bank’s benchmark rate to peak at approximately 5.1% in 2023, up 32 basis points from last June.

Canada’s annual inflation rate accelerated for the first time in ten months, rising unexpectedly to 4.4% in April.

The rise in the price of crude oil, one of Canada’s major exports, lent support to the loonie on Friday. WTI crude oil futures climbed $1.16 to close at $ 71.78 per barrel on Friday, amid demand from China and supply cuts by the OPEC+ (Organization of the Petroleum Exporting Countries and its allies).

On the economic data front, Canada’s wholesale sales surprisingly contracted by 1.4% to C$80.9 billion in April, missing preliminary estimates of 1.6% growth. Foreign investors raised their exposure to Canada’s securities by a net C$13.52 billion in April.

The CAD/USD forex pair rose to 1.3205 on Friday, after hitting its highest intraday level since September earlier in the session. For the week, the loonie added around 1%, recording gains for the third straight week.

Meanwhile, the S&P/TSX Composite Index slipped 0.26% to settle at 19,975.37 on Friday, paring gains recorded earlier in the session.

What are expectations: Traders await the release of economic data on Canada’s industrial producer prices and raw materials price index. The country’s industrial producer prices fell by 0.2% in April and are expected to increase by 0.2% in May.

Analysts expect the raw materials price index to fall by 1.7% in May, following a 2.9% increase in the prior month.

Other Markets: European indices closed higher on Friday, with the FTSE 100, DAX 40, CAC 40 and the STOXX Europe 600 Index up by 0.19%, 0.41%, 1.34% and 0.53%, respectively.

The news shaping the markets

Russia’s President Vladimir Putin said Ukraine had signed a peace treaty with Moscow during the start of the war but later threw it into the “garbage of history.” The comments sent the safe-haven US dollar index higher this morning.


New Zealand’s BusinessNZ Performance of Services Index rose by 3.2 points to 53.3 in May. This was still below the survey’s long-term average and exerted pressure on the NZD/USD forex pair.


Brazil’s IBC-Br index of economic activity rose by 0.56% in April, versus a 0.14% decline in March. Despite this, the BRL/USD pair remained broadly flat in forex trading this morning.


Mauritius posted a trade deficit of MUR 13.1 billion in April, versus a MUR 14 billion gap recorded in the year-ago month, which exerted pressure on the MUR/USD forex pair.


The Eurozone’s hourly labour costs rose by 5% year-over-year in the first quarter, easing from 5.6% growth in the prior period, which sent the EUR/USD pair lower in forex trading this morning.

What else to watch today

Turkey’s consumer confidence index, US NAHB/Wells Fargo housing market index, as well as Central Bank of Brazil’s focus market readout.


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